Shamrock Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at De...
Shamrock Company uses the LCNRV method, on an individual-item
basis, in pricing its inventory items. The inventory at December
31, 2017, included product X. Relevant per-unit data for product X
are as follows.
| Estimated selling price | $49 | |
| Cost | 39 | |
| Estimated selling costs | 15 | |
| Normal profit | 9 |
There were 990 units of product X on hand at December 31, 2017.
Product X was incorrectly valued at $38 per unit for reporting
purposes. All 990 units were sold in 2018.
Compute the effect of this error on net income for 2017 and the
effect on net income for 2018, and indicate the direction of the
misstatement for each year.
| Net income for 2017 | $
|
|
||
| Net income for 2018 | $
|
|
Homework Answers
Net realizable value per unit =
Estimated selling price - Estimated selling expenses
Net realizable value per unit = $49 - $15 = $34
Cost = $49
Value per unit = Lower of cost and NRV
= $34 per unit
Total value of ending inventory = 990 units × $34
=$33660
Incorrect value = 990 Units × $38
=37620
Hence, ending inventory of 2017 is overstated by $37620 - $33660= $3960
Overstatement of inventory diminishes the cost of merchandise sold and thus expands the Net income of 2017 by $3960.
The inventory of 2017 is the starting inventory for 2018. Overstatement of completion inventory for 2017 prompts overstatement of starting inventory for 2018. Expanded starting inventory brings about expanded cost of products sold and decline total compensation.
Hence Net income of 2018 is understated by $3960.
Net income for 2017- $3960- Overstated
Net income for 2018- $3960- Understated
Add Answer to:
Shamrock Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at De...
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Item D
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Item F
Item G
Item H
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Selling costs
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unit data for these products appear below.
Item D
Item E
Item F
Item G
Item H
Item I
Estimated selling price
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$122
$105
$100
$122
$100
Cost
83
89
89
89
56
40
Cost to complete
33
33
28
39
33
33
Selling costs
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